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> I don't understand the argument that they don't profit. All of their people get their pay. Instead of sitting on giant piles of cash they use it all to invest
by Lazare 10y ago
> I don't understand the argument that they don't profit. All of their people get their pay. Instead of sitting on giant piles of cash they use it all to invest in more stuff.
"Profit" is a technical term with a specific meaning; in this context it's the money left over after paying wages, rents, interest, and investing in the business. So there's not much of the argument to understand; they get a lot of money, then they spend it, so there's nothing left to return to the investors which means by definition there's no profit.
> I never understand it when I hear such and such company has billions of dollars of cash just sitting around. If they spent that money wouldn't that help themselves
History is littered with examples of successful companies who spent large sums of money and got nothing in return. If Apple had a clue how to spend $100 billion usefully they would, but they don't. Their existing business are mature; they're selling all the phones they're making. They could build a bunch of factories and triple production, but to what end? They could start a chain of pizzerias, but why would that be a good idea?
- paulddraper 10y agoThey could make a phone with an audio jack.
- rahimnathwani 10y ago"Profit" is a technical term with a specific meaning; in this context it's the money left over after paying wages, rents, interest, and investing in the business. Investments aren't fully deducted from profits in the current period. So if you're measuring profit over any finite period, investments during that period may not have been fully reflected in reduced profits. For example, if a business buys a printer this year for $500, the business's profits will not be $500 lower than if they had not bought the printer. They would likely by $166 lower (assuming 3-year straight line depreciation). they get a lot of money, then they spend it, so there's nothing left to return to the investors which means by definition there's no profit. You're confusing cash flow with profit. When you return money to investors, you return cash, either in the form of dividends, or in the form of share buy-backs. You don't need profits in order to return cash (e.g. you could borrow money secured on your factory, and then pay that money straight to shareholders) and having profits doesn't mean you have cash (e.g. you might have just spent a load of money on new machinery, which would reduce your cash flow without as large a reduction in current year's profits).
- dingaling 10y ago> They would likely by $166 lower (assuming 3-year straight line depreciation). Only if they consider it as an asset, in which the $500 moves from the 'liquid assets' column to the 'fixed assets' column and is then depreciated away over time at $166 per year. The other method of accounting is to immediately deduct that $500 from assets as a cost in the year of acquisition. There's then no need of depreciation or spreading over several accounting years. Any residual value gained by resale at the end of the printer's life can then re-enter the accounts by means of 'other income'.
- SilasX 10y agoI'm no accountant, but I'm pretty sure a business doesn't have unlimited discretion to accelerate depreciation on equipment they buy, deferring or eliminating taxes (due to lower effective profit).
- rahimnathwani 10y ago